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Executive Summary Blog

Legal developments affecting professional liability insurers

Category Archives: Personal Profit/Advantage exclusion

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No Coverage for Receiver’s Claw Back Claim Against D&O Because Profit Exclusion Applied and Claim Did Not Arise Out of a “Wrongful Act”

Posted in Personal Profit/Advantage exclusion, Wrongful Act
The U.S. District Court for the Middle District of Florida, applying Florida law, held that a directors and officers liability insurance policy did not provide coverage for a claim asserted by a receiver seeking the return of bonus and other compensation amounts paid to a former director and officer of the company because (1) the… Continue Reading

Professional Services and ERISA Exclusions Do Not Bar Coverage for Mismanagement Lawsuit Brought by Pension Fund Against Real Estate Advisory Fund

Posted in Allocation, Personal Profit/Advantage exclusion, Professional Services
The United States Court of Appeals for the First Circuit, applying Massachusetts law, has affirmed the district court’s holding that a professional services exclusion in a real estate advisory fund’s D&O policy did not excuse the duty to defend a lawsuit brought by an investor in the fund because the allegations at issue were ambiguous… Continue Reading

Property Management and Financial Interest Exclusions Bar Coverage for Real Estate Professionals

Posted in Personal Profit/Advantage exclusion
Applying Connecticut law, a Connecticut state trial court has held that no coverage exists under a real estate errors and omissions policy for a lawsuit brought by property investors against two real estate professionals arising from the purported mismanagement of property investment companies.  Sarfaty v. United States Liab. Ins. Co., 2018 WL 3060110 (Conn. Super.… Continue Reading

No Indemnification for Insured’s “Restitutionary In Nature” Settlement Payments, Even Without Admission of Guilt or a Final Adjudication

Posted in Loss, Personal Profit/Advantage exclusion, Public Policy prohibition on insurance
The United States District Court for the Southern District of Florida has denied an insured’s request for indemnity from its insurer for the amount owed under a settlement agreement with the state of Florida over grand theft charges against the insured.  The court held that, under Florida law, the settlement does not constitute covered “Loss”… Continue Reading

Fee Arrangement Exclusion Bars Coverage for Claims Arising from Alleged Force-Placed Insurance Scheme

Posted in “Claim”, Personal Profit/Advantage exclusion
A New York state trial court, applying New York law, has held that a fee arrangement exclusion contained in a professional liability insurance policy precludes coverage for claims arising from an insured’s force-placed insurance business.  QBE Americas, Inc. v. Ace Am. Ins. Co., 2017 WL 4122651 (Sup. Ct., N.Y. County Sept. 18, 2017).  The court… Continue Reading

Profit Exclusion Does Not Apply to Judgment Against Insured for Anti-Trust Violation

Posted in Personal Profit/Advantage exclusion
The United States Court of Appeals for the Ninth Circuit, applying Idaho law, has affirmed a lower court’s decision that a judgment against an insured for a violation of the Clayton Act did not preclude coverage under a liability insurance policy’s “financial gain” exclusion.  St. Luke’s Health Sys., Ltd. v. Allied World Nat’l Assurance Co.,… Continue Reading

Allegations Concerning Wage Fixing in Violation of the Sherman Act Do Not Fall Within Professional Liability Coverage for “Counseling” Services

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Professional Services
Applying Colorado law, the United States District Court for the District of Colorado has held that allegations of collusion to fix wages in violation of the Sherman Antitrust Act do not fall within the scope of professional liability coverage for “counseling” services because “counseling” does not include an alleged agreement to fix wages.  Colony Ins.… Continue Reading

Texas Court Holds Disgorgement Amounts Uninsurable as a Matter of Law

Posted in Loss, Personal Profit/Advantage exclusion
The United States District Court for the Southern District of Texas, applying Texas law, and adopting the recommendation of a magistrate judge, has held that reimbursement of excessive executive compensation constitutes disgorgement and is therefore uninsurable as a matter of law under a directors and officers policy.  Twin City Fire Ins. Co. v. Oceaneering Int’l,… Continue Reading

Disgorgement Payment Is Insurable Loss Where Payment Did Not Disgorge Insured’s Own Profits, but Those of its Customers

Posted in Loss, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
A New York trial court, applying New York law, has held that a $140 million disgorgement payment by an insured broker-dealer to the U.S. Securities and Exchange Commission constitutes insurable loss, based on evidence that the payment did not disgorge the insured’s ill-gotten gains, but rather those of its customers.  J.P. Morgan Secs. Inc. v.… Continue Reading

Insurer Has No Duty to Defend Claim Seeking Restitution and Other Unspecified Relief

Posted in Loss, Personal Profit/Advantage exclusion, Wrongful Act
An Illinois federal district court has held that a lawsuit seeking to recover amounts an insured wrongfully refused to pay to another sought only uninsurable restitutionary-type relief, not “Damages,” and thus did not trigger an insurer’s defense obligations under an E&O policy.  Westport Ins. Corp. v. M.L. Sullivan Ins. Agency, Inc., 2017 WL 56635 (N.D.… Continue Reading

Personal Profit Exclusion Does Not Relieve Insurer of Duty to Advance Defense Costs for Other Pending Causes of Action

Posted in Allocation, “Claim”, Defense Costs, Personal Profit/Advantage exclusion
Applying Montana law, the United States District Court for the District of Montana has held that a D&O policy’s personal profit exclusion, which was implicated by a finding of conversion against an insured director, did not relieve the insurer of the duty to advance defense costs for the other remaining causes of action against the… Continue Reading

No Coverage for Claims Arising Out of Attorney’s Theft of Client Funds Before Policy Period

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions
The United States District Court for the Middle District of Tennessee, applying Tennessee law, has held that an insurer had no duty to defend or indemnify an insured attorney for claims arising out of his theft from his clients’ estates because the attorney had knowledge of the theft and could reasonably foresee a claim before… Continue Reading

Capacity Issues, Personal Profit Exclusion, and Insured v. Insured Exclusion Do Not Preclude Duty to Defend

Posted in Insured v. Insured Exclusion, Personal Profit/Advantage exclusion
A federal appellate court, applying Utah law, has held that an insured v. insured exclusion did not preclude a duty to defend where one insured entity had changed its name and disaffiliated from the other insured entity. Church Mut. Ins. Co. v. Ma’afu, 2016 WL 3997212 (10th Cir. July 21, 2016). The court also held… Continue Reading

Negligent Misrepresentation Claim Alleges Wrongful Act Despite Contract-Based Damages

Posted in Personal Profit/Advantage exclusion, Wrongful Act
A Massachusetts intermediate appellate court has held that a claim for negligent misrepresentation alleged a Wrongful Act, even though the alleged damages were based on contractual services. Winbrook Comm. Servs., Inc. v. U.S. Liability Ins. Co., 2016 WL 3245059 (Mass. App. Ct. June 14, 2016). Additionally, the court held that the creation of an opportunity… Continue Reading

No Coverage for Lawyer’s Alleged Self-Dealing

Posted in Personal Profit/Advantage exclusion
The United States Court of Appeals for the Ninth Circuit has affirmed a decision in favor of an insurer, holding that the business enterprise and trust exclusions in a lawyers professional liability policy barred coverage for a suit alleging self-dealing by the insured attorney and his firm. Christensen v. Darwin Nat’l Assurance Co., No. 14-15914… Continue Reading

Insurer Failed to Show Claims Were Not Interrelated; Not Entitled to Summary Judgment for Suit Seeking Disgorgement

Posted in Defense Costs, Personal Profit/Advantage exclusion, Public Policy prohibition on insurance, Related Claims and associated exclusions, Wrongful Act
A Texas intermediate court of appeals has held that an insurer was not entitled to summary judgment where the insurer contended that a claim brought by a bankruptcy plan agent (i) did not allege a wrongful act, and (ii) was not made within the policy period because it did not relate back to claims made… Continue Reading

“Bargaining Leverage” Does Not Suffice to Trigger Personal Profit/Financial Advantage Exclusion

Posted in Defense Costs, Personal Profit/Advantage exclusion
A federal court in Idaho has held that “bargaining leverage” in violation of state and federal anti-trust laws is an insufficient gain for purposes of triggering an insurance policy’s improper personal profit or financial advantage exclusion. St. Luke’s Health Sys., Ltd., v. Allied World Nat’l Assurance Co., No. 1:14-CV-475-BLW (D. Idaho  Sept. 4, 2015).… Continue Reading

Contract Exclusion Bars Coverage for City but Not Individual Officials

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Dishonesty Exclusion, Personal Profit/Advantage exclusion
The United States District Court for the Northern District of Illinois, applying Illinois law, has held that a contract exclusion barred coverage for a claim against an insured city by the operator of a minor league baseball team which asserted it was a third-party beneficiary to the contract for the construction of a stadium in the… Continue Reading

Fourth Circuit Affirms Recoupment for Insurer Where Guilty Pleas Triggered Policy Exclusions

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
Applying Virginia law, the Fourth Circuit has held that a D&O policy did not cover civil and criminal investigations where four of the insured’s officers pled guilty to fraud and bribery charges. Protection Strategies, Inc. v. Starr Indem. & Liab. Co., No. 14-cv-1972 (4th Cir. May 27, 2015). The Fourth Circuit also affirmed the insurer’s… Continue Reading

Delaware Trial Court: “Final Adjudication” Exclusion Trumps “No Loss” Argument

Posted in Loss, Personal Profit/Advantage exclusion, Professional Services, Public Policy prohibition on insurance
A Delaware trial court has concluded that a qui tam settlement was a covered “Loss,” declining to decide whether the settlement constituted uninsurable restitution.  Gallup, Inc. v. Greenwich Ins. Co., 2015 WL 1201518 (Del. Super. Ct. Feb. 25, 2015).  The court also held that a professional services exclusion did not bar coverage.  The court did… Continue Reading

Borrowing Funds from Client Does Not Constitute Professional Services and Profit Exclusion Bars Coverage for Accountant’s Failure to Repay Client

Posted in Personal Profit/Advantage exclusion, Professional Services
Applying Oregon law, the United States District Court for the District of Oregon has held that an insurer had no duty to defend or indemnify an accountant for a lawsuit alleging breach of contract and breach of fiduciary duty for the accountant’s failure to repay funds to a client owed under promissory notes because the… Continue Reading

Civil Theft Award Not Covered by D&O Policy or CGL Policy

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Loss, Personal Profit/Advantage exclusion, Public Policy prohibition on insurance
A federal court in Florida has held that neither a D&O insurer nor a CGL insurer has a duty to indemnify the policyholder for a final judgment award that includes treble damages for civil theft.  Twin City Fire Ins. Co. v. CR Technologies, Inc., 2015 WL 1055382, (S.D. Fla. Mar. 11, 2015).  In so holding,… Continue Reading

D&O Insurers Liable for $30 Million Judgment Arising from Dissolution of Hospital Affiliation

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Personal Profit/Advantage exclusion, Professional Services
A Rhode Island federal district court has ruled that two D&O policies respond to a nearly $30 million judgment against an insured health system organization that was sued in connection with its disaffiliation from a non-profit hospital.  Lifespan Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., No. 1:12-cv-00300-M–LDA (D.R.I. Nov. 17, 2014).… Continue Reading

Insurer’s Recoupment of Defense Expenses Includes Pre-Judgment Interest

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
A federal district court, applying Virginia law, has held that an insurer entitled to recoup defense expenses also was entitled to pre-judgment interest on its payments.  Protection Strategies, Inc. v. Starr Indemn. & Liab. Co., No. 1:13-CV-00763 (E.D. Va. Aug. 18, 2014).  Wiley Rein LLP represents the insurer.… Continue Reading